lacter///valleyedit/march/1stjc Hed — Tax cheats It’s hardly surprising to see five health maintenance organizations four of which are based in the San Fernando Valley threaten to leave the City of Los Angeles for other nearby municipalities because of a tax dispute. The city’s bureaucrats and many of its lawmakers long have ignored the various tax inequities that make up the inflated cost of doing business in L.A. In only rare instances the DreamWorks SKG project on the Westside is probably the best example has the City Council agreed to work with the Mayor’s Office in creating incentives for business. Other, less-glamorous companies from factories to law offices to even HMOs aren’t so lucky. They’re stuck with tax rates that either are out of proportion to the revenues generated or don’t account for an industry’s particular method of generating accounts. This is not just a case of business complaining about taxes being too high. This is about the fairness in how those taxes are established. The city places HMOs, for example, in the “professional services” category, which requires them to pay $5.91 for every $1,000 of gross revenue L.A.’s highest tax bracket. But the bulk of HMO revenues is immediately paid out to health care providers, such as hospitals and physicians. The HMOs argue, with considerable justification, that they should be taxed only on their net take. It’s no wonder such inequities exist. It has been seven years since the city’s tax code was last updated an eternity given the number of evolving industries that are frequently hard to classify. L.A.’s multimedia industry, which is made up of fledgling businesses that produce compact disks, software, tapes and films, also had been in the $5.91 tax bracket that is, until its leadership put heat on the council after DreamWorks received its break. Last month, the council finally voted to approve an 80 percent tax cut for multimedia firms, bringing it down to the $1.18-per-$1,000 category. A long-awaited report by a group of private consultants points to other inequities in the city’s tax structure, putting L.A. at a disadvantage with nearby municipalities, as well as cities all over the country. We’re not suggesting a wholesale cut in business taxes. L.A., unlike its smaller neighbors like Glendale and Calabasas, faces huge costs including police and fire departments, a full-time City Council and a bureaucracy that deals with everything from land planning to landlord-tenant relations. While it can be argued that L.A.’s city government could be trimmed, such operational needs are inherently high. Taxes make the machinery run, but those taxes should be apportioned with logic and fairness. It’s encouraging to see the council act on multimedia. Perhaps a proposal by Councilwoman Laura Chick to adjust the tax rates for HMOs will receive similar attention. The real answer, though, is not piecemeal addendums to the tax code. The real answer is to address the system’s inherent imbalances by undertaking a significant overhaul. For years, there has been talk around City Hall about just such an undertaking. The time has come to turn words into action.